Market Beat: Opportunity zone funds encourage investment in low-income areas |

Market Beat: Opportunity zone funds encourage investment in low-income areas

Ken Roberts
Market Beat

Diversification is one of the best risk management tools available. Most portfolios should have some exposure to real estate. A recent change in the tax code has made some real estate more attractive for tax purposes.

Opportunity zones are a relatively new development due to changes in the tax code. Section 1400Z of the Internal Revenue Code defines them as low income census tracts. There are opportunity zones in all 50 states. The zones were selected by the state governors and approved by the U.S. Treasury. The reason for creating opportunity zones was to encourage real estate investment in low income areas.

The tax breaks that come with opportunity zone investing are significant. The basics are pretty simple but expert advice from qualified attorneys and accountants should be sought for the details which can get complicated.

If you purchase property in an opportunity zone and hold it for at least ten years, the property can be sold without any capital gains tax. You can also buy real estate within an opportunity zone with money from realized capital gains and reduce the tax liability on those gains.

… much of the area north of Truckee and around Donner Summit is in an opportunity zone to encourage investment.

For example, say you own shares of XYZ stock in a taxable account and have a substantial capital gain. You can sell the stock this year and you have 180 days to invest the funds in an opportunity zone. If you hold the opportunity zone investment for at least five years, the capital gains on the original investment will be reduced by 10%. After seven years, the capital gains tax liability is reduced by 15%. So, you can defer paying the tax on an investment for seven years and get a reduction on that tax liability. Also, after 10 years the property can be sold without any tax liability under the current rules.

Opportunity zone funds are also available and are a relatively new investment option. There aren’t any publicly traded opportunity zone real estate funds yet, but that could be something that we’ll see in the future. Currently, opportunity zone funds are private and available to accredited investors.

There are opportunity zones in this area, while Truckee and Lake Tahoe are not, much of the area north of Truckee and around Donner Summit is in an opportunity zone to encourage investment.

It will be interesting to see how investment in these areas are affected by the new rules and how the opportunity zone funds evolve.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.

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